The import basket composition: Economic Advisory Group (EAG) hopes for a decrease in the share of fuel products in favor of technology-intensive goods

Islamabad, February 20, 2025 – Pakistan’s economy is struggling under the weight of deep-rooted structural issues that threaten its long-term growth and global competitiveness. The Economic Advisory Group (EAG) highlights three key areas that require urgent attention: the country’s energy deficit, the disproportionate share of fuel imports in total trade, and the critically low imports of technology-intensive goods. Addressing these issues through market-driven reforms and trade liberalization is essential for long-term stability.

Pakistan has a relatively low level of energy use per capita compared to India, Vietnam, Indonesia and Thailand as according to the statistics extracted from ‘Our World in Data’. Further, the relative change in energy use per capita in Pakistan between 1990 and 2020 was stagnant in comparison to the regional countries. While it has increased by only 62 percent for Pakistan, it has increased by more than 130 percent for India, 200 percent for Thailand and a whopping 1000 percent for Vietnam. Pakistan’s low per capita fuel consumption reflects severe energy constraints that hinder industrial productivity and economic expansion. Unlike regional economies that have scaled up their energy access to drive growth, Pakistan remains dependent on limited energy resources. Ensuring competitive energy markets, allowing deregulation of fuel prices, and incentivizing private sector investment in both conventional and renewable energy sources are critical steps toward long-term economic resilience.

Fuel imports as a percentage of merchandise imports in Pakistan in 2023 was 34 percent, according to the World Bank’s World Development Indicators. According to the Pakistan Bureau of Statistics, the imports of petroleum products exceeded $9 billion in the first seven months of FY25, which was approximately 30 percent of total imports into Pakistan. The average for middle income countries was 19 percent. Although India has a higher percentage than Pakistan, it is one of the largest exporters of refined oil in the world, participating in global and regional value chains as it processes crude oil into refined products. While more than 60 percent of the fuel imports into India is in the form of crude oil, it is approximately 25 percent for Pakistan according to ITC’s Trademap.org. Pakistan relies on refinery capacities abroad for supply of refined products in the domestic market. India exported more than $98 billion worth of fuel products in 2022, while exports from Pakistan in refined products were comparatively negligible. Pakistan’s large fuel import bill is also unfortunately connected to its habit of getting payment deferments for oil from Gulf Cooperation Council (GCC) countries. As this is often the only form of financing that the GCC is willing to provide, Pakistan obtains it and incentivizes its fuel import habit. It is hoped that an improvement in Pakistan’s overall economic health will result in a reduction in counting on these oil payment deferments. In addition, while only 0.34 percent of primary energy consumption is from solar in Pakistan, it is 2.7 percent in India, and 4.9 percent in Vietnam. This clearly indicates potential in alternative investments to meet our energy needs.

At the same time, Pakistan’s high fuel import share as a percentage of total imports signals a structural weakness rather than a mere trade imbalance. This anomaly is driven by a constrained industrial base, excessive regulatory barriers, and an uncompetitive business environment that limits diversification. A more open and competitive trade regime—rather than arbitrary fuel import reductions—is essential for sustainable economic development. Policies must focus on reducing anti-export biases, ensuring a market-based exchange rate, and facilitating capital inflows to strengthen Pakistan’s external account position.

Compounding these issues is Pakistan’s alarmingly low share of technology-intensive imports. The imports of ICT goods as a percentage of total imports into Pakistan was 5.5 percent in 2021, compared to the average of 16 percent in middle-income countries. This average increases to 25 percent for the East Asian economies. The country’s private sector must be acutely aware that Pakistan ranks 125 out of 166 on the frontier technologies readiness index published by UNCTAD, while India ranked 46, Thailand ranked 49 and Vietnam ranked 62. Unlike economies that have successfully integrated into global supply chains through strategic imports of high-tech and ITA goods, Pakistan remains locked out of key productivity-enhancing industries. Restrictive trade policies and excessive import regulations have stifled private sector efforts to modernize, limiting the ability of firms to adopt productivity-enhancing technologies and integrate into global value chains. EAG strongly advocates the removal of barriers to technology imports, moving away from industrial policy that promotes import substitution, and the adoption of policies that encourage competition and attract foreign investment.

EAG emphasizes that these challenges should not be viewed in isolation. Pakistan must undertake a broad-based structural transformation by embracing market-based reforms, reducing government overreach, and fostering a level playing field for businesses. Liberalizing trade, ensuring a stable and predictable macroeconomic environment, and supporting industrial expansion through market-driven policies are crucial for breaking Pakistan’s cycle of economic stagnation. A transition to a market-oriented system, grounded in fair competition and predictable policies, will encourage industrial modernization, improve trade competitiveness, and lay the foundation for sustainable economic growth. It will also increase the share of products in the import basket that contribute to improving the productive capabilities.

By prioritizing high-value imports, enabling freer trade, and eliminating policy distortions, Pakistan can create a sustainable and competitive economic environment. The government must focus on effective governance, regulatory simplification, and structural reforms that enable businesses to compete on a global scale. A strong, market-driven framework will allow Pakistan to optimize its trade balance, enhance its industrial capabilities, and achieve long-term economic stability.

For further information, contact EAG Chair, Dr Aadil Nakhoda at anakhoda@iba.edu.pk